Expressing dismay over health ministry's compromise on health tax in lieu of abolishing third tier from cigarettes tax, The Network for Consumer Protection here on Wednesday regretted that the tobacco control is back to square one where it was three years ago in 2016-17.
On the eve of the annual budget, the Ministry of National Health Services, Regulations had claimed to have got approval from the federal cabinet for imposing health tax on cigarettes and carbonated drinks and the revenue generated will be spent on health. But budget proposal did not mention it.
Even WHO's Regional Director Dr Ahmed Al-Mandhari's congratulation to Pakistan government on health tax went up in smoke. Instead of getting health levy, the ministry lost the budgetary allocations by almost 50% from previous year's budget of Rs 25 billion, of which it could only realize around 8 billion after cut in PSDP (Public sector Development Program).
On anti-smoking, the ministry had to eat humble pie as the most consumed cigarettes brand remain cheaper and accessible to the bulging youth of the country.
"The health tax is not a tax but a new concept that is alien to Pakistan's financial system. The ministry needs to do a lot of effective homework and generate statistics to convince the finance managers as this idea was first shot down in the parliament and then in the cabinet early this year before being approved by the cabinet later last month" says Nadeem Iqbal, CEO, The Network.
Therefore, Nadeem says, Federal Excise duty remains a tax that is imposed to reduce the consumption of hazardous items. In addition, the target of tax collection from cigarettes of Rs 147 billion seems very ambitious as last year government could not even achieve the target of Rs 114 billion, Nadeem added.
In the budget proposal 2019-20, government has increased prices of cigarettes by raising FED from Rs 90 to 104 per pack of 20 cigarettes on upper tier (low consumed) and adjusted PKR 33 for 2nd tier (highly consumed) by removing 3rd tier that was introduced in 2017-18.
In 2017-18 when 3rd tier was introduced, almost 80% of the most sold brands were falling in 3rd tier and their price was reduced by 50% and average FED ratio declined from 57.5% to less than 45%.
In 2016-17, FED collection has seen a sharp decline from PKR 90 billion in 2015-16 to PKR 66 billion in 2016-17 and further decreased to PKR 65 billion in 2017-18. This the multinational tobacco companies contributed to higher incidence of counterfeit cigarettes.
No doubt that two tier tax system brings better revenues. As in 2012/13, the first year when the two tiers were introduced the FED collection was increased from PKR 16.1706 billion in 2012-13 to PKR 90.4353 billion in 2015-16.
Proposed FED rate that would collect PKR 147 billion in revenue, the overall prices of cigarettes would increase by 10-14 rupees raising the FED ration by around 60% on a cigarette pack which will remain much lower from the WHO recommendations of minimum 75% of a cigarette pack. However, average FED ratio in 2016-17 was roughly position 57%.
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